Saturday, July 13, 2002

There are at least four areas of exposure for George Bush in his involvement with Harken Energy. Two of these can seriously hurt or destroy Bush, and two are red herrings intended to hide the real problems. The press coverage is all over the map, with some articles focussing on the red herrings with no mention of the serious problems. These are probably planted stories by the Bush Administration. On the other hand, we are also seeing major papers zeroing in on the real problems, which is an indication to me that the powers that be are getting tired of Bush's act. It some ways, this story may follow a Watergate trajectory, where the avidity of the attack by the Washington Post signified that the powers that be wanted to be rid of Nixon. I am so cynical about the mainstream American press that I believe that it is absolutely impossible for it to publish any deeply true articles without the say-so of certain people, but apparently that say-so has been given here. The two red herrings are:

The failure to file the second SEC form on time. The fact that the filing was so late and undated probably evidences some guilt, but no one is going to get too excited about what amounts to a technical error over ten years ago. It is too easy to blame it on a clerk or a lawyer, and the SEC didn't get too upset about it at the time.

The loans made by Harken to Bush to allow him to exercise his stock options. While it is ironic to find that Bush received such loans when Bush has complained about them, and it is clear that they were a benefit to Bush, Harken could have given Bush the same benefit simply by paying him more in salary. No one is going to get upset about this, and Bush is right when he says this was corporate behaviour at the time.

If you see any journalists making a big deal out of these issues without raising the real problems, I fear you are reading part of a propaganda campaign to hide Bush's real Harken problems (documents on the problems are availablehere). The two real problems are:

The fact that Bush sold his shares in Harken on the basis of insider knowledge ('material non-public information') that Harken was in terrible financial shape. This is always a difficult thing to prove, and Bush is as qualified as anyone in the United States to claim that he was just too stupid to see what was going on. He claims that he was unaware of the company's problems when he sold his shares in June 1990. On the other hand, we know that Bush was a director of Harken, was on the audit committee, and was appointed to a 'fairness committee' of the board of Harken specifically to consider the effects of the restructuring of Harken necessitated by the terrible financial problems it had. "In 1994, another member of both committees, E. Stuart Watson, assured reporters that he and Mr. Bush were constantly made aware of the company's finances". We also know he received specific warning from the in-house counsel of Harken not to sell shares on the basis of insider information. He received two letters from top Harken officials in April and May of 1990 stating: 1) the company was in a "liquidity crisis", was at risk of failure in its share offering due to a decline in oil prices, and was suffering an "eleventh hour cram down" by its bank due to 'technical' defaults in its loan agreement (pdf of the letter dated April 20, 1990 from Mikel D. Faulkner to the Board of Directors of Harken) ; and 2) it was in trouble with its banker because it "was in a state of non-compliance with regard to loan covenants", and it was seeking from its bank "permanent waivers of various loan covenant violations" (pdf of the letter dated May 18, 1990 from Bruce N. Huff to the 'special committee' that Bush was on). Note also that even in its self-serving explanation to the SEC of what it was up to, Harken admits it was in a "severe cash crisis" in late June 1990, and was generally in all kinds of difficult negotiations concerning the sham transaction I refer to below, all of which was presumably unknown to the public, and all of which was going on at exactly the same time that Bush sold his shares.

The most important Harken issue was the 1989 sham sale of 80% of a Harken subsidiary to insiders of Harken, with the purchase price being lent by Harken to the insiders. No actual money had to change hands (but I bet the lawyers had cheques on the boardroom table in the closing room to ensure everything was on the up and up, and some of the purchase price may have been real), and this has every appearance of being a fraud on the non-insider shareholders of Harken to improve the looks of its financial statements and artificially maintain its share price. No real purchaser would have bought the interest in the subsidiary at the inflated price (and I'll bet the insider purchasers had the right to put the shares back to Harken at some future time in return for cancellation of the debt). What they effectively did was inflate the value of a company asset and turn it into a receivable from the purchaser. To show how fraudulent this is, they could have done the same thing with a rock picked up off the Harken parking lot. All they would have had to do was agree with an insider to purchase the rock for a millions of dollars, lend the money for the purchase, and make a big sale and profit which they could use on their financial statements (they would unwind the transaction when the company's financial picture was better). Bush would have had to know about this transaction, and still benefitted from the artificially inflated share price when he sold his shares in 1990. What is even more interesting is that the original transaction started to unravel due to unanticipated environmental problems (my guess is that the insider purchasers hadn't counted on this liability, and were using whatever leverage they had, possibly a put agreement, to renegotiate the deal), and negotiations to fix the problem on terms less favorable to Harken, described in the memorandum to the SEC I refer to above, were actually going on at the time of the Bush sale of his shares. I'd really like to see all the documents on this transaction.

The key is to keep pounding on the real problems, and don't get sidetracked by the red herrings. The public can easily see that the SEC investigation was a sham by regulators beholden to Bush's father (see the whitewash SEC internal memorandum), and will have no problem seeing the injustice and fraud in Bush's Harken adventures as long as the story is not messed up with irrelevancies. First, you get rid of Cheney as the sheer mass and outrageousness of the Haliburton problems while Cheney was in charge should be enough to get him to resign 'for his health'. You replace him with Colin Powell. Then you get rid of Bush. Colin Powell will make a great President.